IBC (Amendment) Ordinance to bring positive changes  

The Insolvency and Bankruptcy Code was introduced in an effort to decrease the number of high-profile banking frauds, to establish a uniform insolvency and bankruptcy law as well as to create a conducive credit eco-system in the country.

The latest ordinance in the law, which was applicable from 6 June, 2018, makes way for transparency and accountability in the existing corporate insolvency resolution process (CIRP). The changes introduced are primarily focused on the real estate and financial sectors and collectively hope to bring holistic growth and progress of the credit eco-system in the country.

The highlights are:

Integration of section 5(5A): The introduction of this section allows the corporate applicant to include a corporate guarantor. The corporate guarantor will offer surety in the case of a contract of guarantee to a corporate debtor.

Applicability of the Limitation Act: The implementation of this act aims to clarify the unclarity arising from various orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). Section 238A has been inserted in the IBC, making the Limitation Act, 1963, applicable in proceedings or appeals before the NCLT, NCLAT, Debt Recovery Tribunal and Debt Recovery Appellate Tribunal.

Affirming the rights of homebuyers: The amendment brought positive news for homebuyers raising their status as financial creditors in the case of a CIRP. The amount collected from allotees of a real estate project will now have the commercial effect of a borrowing. This amendment gives power in the hands of homebuyers and ensures their voice is given equal significance.

Change in the voting threshold: As per section 12 of the IBC, the resolution professional can now extend the CIRP beyond 180 days if the committee of creditors (CoC) passes a resolution by 66% as opposed to the earlier mandate of 75%. This will also effect Section 22, since confirmation of an interim RP will now be easier as the voting threshold has been reduced.

Insertion of section 12A: The insertion of section 12 will now allow settlement after the commencement of a CIRP. The applications under section 7, 9 and 10 will now be withdrawn after the approval of 90% voting shares of the CoC. A decision of the NCLAT, which was upheld by the Supreme Court held that this was not previously allowed under the IBC.

Scope of moratorium reduced: In section 14, there is an additional insertion of 14(3)(b), which concludes that a moratorium will not include a surety in a contract of guarantee to a corporate debtor.

Amendment in section 30(2)(f): An explanation is added which says that if a resolution plan requires shareholder approval, an approval of this nature will be deemed to have been given.

Insertion of section 31(4): The resolution plan will now need to be approved with all permissions within an year of approval of the plan by the CoC.

Proviso added: Under a proviso introduced in section 434 of the Companies Act, 2013, where a winding-up petition is pending in a high court, the petitioner can apply for transfer of the proceedings to the NCLT. In this case, the petition will be treated as one under the IBC.

Special treatment: This special treatment allows the promoter of a micro, small or medium-sized enterprise in a CIRP to bid for the enterprise provided under two conditions. One that the promoter is not a wilful defaulter and secondly that is not disqualified for reasons unrelated to the default.

The most significant change among the ones mentioned is the status of homebuyers as financial creditors. The change is bound to provide relief to homebuyers and will greatly help in settling issues. The impact of the changes can also be seen in the time to come but industry experts are hopeful that it will bring far greater transparency to the entire process.